Venezuela halves oil production target

Venezuela´s state-run PdV has quietly abandoned an ambitious plan to reach 6mn b/d of crude production capacity by 2021 in favor of a far more modest target of 3.18mn b/d by 2025, according to a company presentation seen by Argus.

Difficult market conditions, including dramatically lower oil prices since 2014 and a persistent crude supply glut, forced PdV to "recalibrate" its core long-term investment plan late last year, an energy ministry official said.

The revised long-term plan would raise crude output by 670,000 b/d by 2025, assuming a starting point of 2.51mn b/d cited in the company's 2017 business plan.

Assuming the January 2017 level of 2.25mn b/d that Caracas reported to Opec, PdV would have to increase production capacity by 930,000 b/d to reach the 2025 target.

Argus estimates that PdV's real crude production is about 2mn b/d, more than 1mn b/d below the new long-term goal.

According to PdV´s revised plan, existing and new Orinoco extra-heavy crude projects would account for 1.9mn b/d or almost 60pc of the 3.18mn b/d of planned production capacity by 2025.

The Orinoco heavy oil belt now accounts for about 1.2mn b/d. Under the new plan, PdV would add around 700,000 b/d of new Orinoco production over the next nine years, compared with up to 2.4mn b/d of new Orinoco output originally projected in the company's now abandoned Siembra Petrolera plan that was anchored on the 6mn b/d target.

PdV estimates the total cost of its scaled-down plan at about $76bn or roughly $8.4bn annually over nine years, compared with up to $257bn under its scrapped Siembra Petrolera plan. The plan does not indicate how much of the investment would come from PdV´s partners, but under Venezuela´s current legislation, PdV is obligated to hold a majority stake in oil projects.

PdV will continue blending Orinoco extra-heavy crudes with light crude, including some imported grades, to produce Merey 16 for export.

But a slower development pace for the new Orinoco ventures should reduce costs associated with rising light crude and naphtha imports, even as PdV seeks to revive output from its own long-neglected light and medium oil fields.

The new plan eliminates a campaign to install six new heavy crude upgraders in the oil belt, plus an associated solids export terminal on the Orinoco River. The upgraders were deemed too costly, and potential foreign investors including PdV's existing joint venture partners have shown no interest, the energy ministry says.

PdV has in effect already shifted modest new Orinoco production that exceeds the capacity of four existing upgraders to less costly blending operations.

The new plan would expand PdV´s refining capacity to 1.5mn b/d by 2025, a net increase of only 200,000 b/d from its current local nameplate capacity of 1.3mn b/d, of which less than 50pc is currently operational.

PdV previously planned to upgrade its four existing domestic refineries, and build at least two new ones in Barinas and Anzoategui states with up to a combined 400,000 b/d of processing capacity.

On paper, the company´s planned $10.5bn upgrade of its 190,000 b/d Puerto La Cruz refinery to 210,000 b/d remains on track for completion in 2018. But PdV has shelved plans to build the 100,000 b/d Batalla de Santa Ines refinery in Barinas and the 300,000 b/d PetroBicentenario refinery at the Jose complex in Anzoategui in which PdV and Italy´s Eni were to be 60:40 shareholders.

If PdV meets its new downsized target of 3.18mn b/d by 2025, production capacity would still fall short of a historical peak of 3.3mn b/d registered in 1998, the year Hugo Chavez was first elected president of Venezuela. Chavez ushered in a period of nationalizations and rebuke for the private sector that current president Nicolas Maduro has deepened since taking office after Chavez´s death in 2013.